Gerrit Argento: Union Taxes in Greenwich

We will soon approve another budget in Greenwich packed with excessive compensation to town-unionized employees. In this regard, I copy below the text of a short speech I gave to the RTM last October and below that offer some more general thoughts on our fiscal situation.

Address to the RTM, October 2015, on the Proposed Contract with the School Administrators Union:

The overall increase in the proposed contract is 9.5%. In my opinion, this is excessive for 4 reasons.

First, we do not need to pay our school administrators more because of inflation. Inflation is flat. In 2016, Social Security payments will be flat. This will be the third time in five years that people receive no increase in their Social Security payments. The salary component of this contract is a 2.6% increase. That is about 3 times the rate of inflation.

Second, we do not need to pay our administrators more because of productivity increases. Neither the union nor the town has argued that productivity has increased. In fact, the number of administrators has increased while the student population has remained flat. Economists tell us that if the number of employees needed to do the work decreases that indicates an increase in productivity. If the number of employees increases and the work requirement stays the same, that indicates a decline in productivity. Are we increasing compensation in return for getting a decline in productivity?

Third, we do not need to increase pay at over 3 times the rate of inflation to support the recruitment and retention of our administrators because their turnover is low.

And fourth, our administrators are already well paid.

For comparison, consider the salaries at the US Department of Education. This is an administrative cabinet level department where 4,400 employees are hired for a full work year to administer a budget of $68 billion dollars. The most recent federal Plum Book shows the following data. The US Under Secretary of Education, number two in the Department, makes $183,300. The Department’s Chief Financial Officer makes $158,700 and the Chief Information Officer makes $148,700. In Greenwich, in year one of the proposed contract, a Headmaster will make $189,012, which is more than the Under Secretary of Education makes; a Greenwich Program Coordinator will make $154,800 and a Program Administer will make $144,020. Along with their generous compensation, our administrators get rock solid job security, something the private sector taxpayers in Greenwich do not get.

I recommend that you vote no or at least abstain on this contract to show our labor contract negotiators and our political leaders that it is time for a new labor policy. We need to be fair to the unions but we also need to be fair to the taxpayers whom we represent. This contract, as well as other contracts negotiated by our leaders, is not fair to the taxpayers.

Thank you.

The Situation in Greenwich

After I made that speech, many people told me what I have heard many times about other contracts, “Of course you’re right. The contract is excessive. Everyone knows it’s excessive. But we have to accept it. If we don’t accept it, we will have to go to arbitration in Hartford where we could be forced to pay even more. This is a Democratic state. The public employee unions are well funded, well organized, confident and relentless in bargaining for excessive compensation, especially pensions and health care, and in inserting their preferences in the Connecticut General Statutes. The towns are atomized, leaderless and fearful. We can’t do anything about it. We have to be realistic.”

Of course, such realistic counsel would have stopped our Connecticut colonial ancestors from standing up to Great Britain. To the extent that union pressure in Greenwich and Hartford causes us to over pay, we have taxation with representation and expenditure with intimidation.

Such counsel shows a depressing attitude of reflexive, pre-emptive capitulation. Knowing this attitude, how can the unions not ask for too much?

Public Unions as the New Renter Class

Before the French Revolution, the nobles who owned most of the prime agricultural land, which was the chief economic asset, were called the Rentier Classe because they lived on rents paid by the peasants who worked the land. The only risk the nobles faced was agricultural failure: if the crops failed, the peasants could not pay their rents.

The public unions are in a stronger position than the nobles because they do not face economic risk. Their rents come from law and legal contracts, which, unless they sink the state, are immune from economic downturns. For example, the teacher’s union in addition to its contract with the Town of Greenwich has many clauses in the CT General Statutes, which make it almost impossible to fire a teacher for incompetence. Just as the nobles owned the farmland, the modern government employee unions with their immutable contracts and statutory entitlements can be said own the taxpayers.

A good example of seeking rents from economic activity vs. seeking rents from law occurred in the early period of Governor Christie’s governorship in New Jersey. New Jersey’s budget had a huge deficit that Christie was bound by law to balance. Part of Christie’s solution to the problem was to cut the compensation of public employees including teachers. The teaches union went ballistic in opposing the cuts but surprisingly, Stephen Sweeney, the head of the NJ Senate, a staunch Liberal Democrat and union leader, cooperated with Christie. Sweeny was a long time top official of the iron workers union whose members worked mainly for private sector employers. Sweeny knew that if the economy of NJ continued to stagnate, his members would remain unemployed. He voted for the cuts necessary to balance the budget and boost the state economy. The teachers were not as concerned about the economy because their rents came from taxes mandated by law and contract.

Union Costs vs. Other Costs

Roughly 70% of Greenwich’s operating budget is compensation and almost all Town employees are unionized. If in the budget we overpay on one huge category, compensation, we are forced to underpay in other categories. Let me mention just two underfunded categories: our harbors are silting up, we need big expenditures on dredging and our leaking sewers are polluting our land and water. Let me give you some 2014 pollution figures recently reported by Bob Horton in the Greenwich Time. The EPA’s acceptable seasonal level of E.coli (fecal matter) is 35 colonies per 100 milliliters of water; “a reading on any given day of 105 colonies or greater shuts down any beach. Byram Beach is one of the most frequently closed beaches in the state”. Here are some 2014 readings reported by Horton, remember 100 colonies is the ceiling: 488,400 colonies at Nutmeg Drive (Glenville); 86,500 colonies at Halsey Drive (Havemeyer Park) and 27,500 colonies at Booth Place (Chickahominy).

Unions and Greenwich’s Declining Real Estate Advantage

Greenwich has been uniquely blessed with low real estate taxes making it attractive for young families, so important to the future of Greenwich, to move here from New York City. As I understand it, our lower real estate taxes are due to two causes: approximately 25% of our children go to private schools, thus greatly reducing our education costs and much of the Town’s work is done by unpaid volunteers. For example, the Planning and Zoning Commission which sits through many hours of meetings and makes important decision is all volunteer.

Our budgets which routinely award compensation well in excess of inflation and well in excess of the generous resources which would be provided by our Grand List tax base against a constant mil rate, are crowding out legitimate claimants to town resources. Our mil rate went from 7.9 in 2007 to 11.27 in 2015, an increase in the tax rate of 50%. If the federal government raised each income tax bracket 50% in nine years, we would have another American Revolution against unfair taxation. It is sad to think that we are losing our tax advantage and skimping on essential expenditures because we are over paying the unions, especially over paying their future benefits which constitute a growing liability to be faced by our children, if our children can afford to live in Greenwich.

The Corporate Response

What would a corporation do if faced with an external problem that was draining its resources and undermining it? Would the CEO say to his shareholders, “I’m sorry. We can’t do anything about it. We must be realistic. We will just have to accept it.” No CEO would say this even if he thought his board would not fire him for such a helpless and unimaginative attitude.

What would the CEO do? He would call in his senior management team. They would brainstorm. They would accurately define the problem with lots of data backup. They would define a strategy and break it down into tactical steps and break down those steps into work assignments with completion dates and performance measurements. They would meet in a month to review progress and if necessary adjust strategy, tactics and work assignments. This would go on month by month with energy and determination, with adjustments, with lessons learned, with more brainstorming and reports to the board. Even if after many months no progress were made, the CEO and his teammates would feel that they were serious and responsible, that they had tried their best, that they had fulfilled the demands of leadership.

Our leaders who fear arbitration and routinely accept excessive union demands are the Chair of the School Board, the Chair of the BET, the Town’s labor negotiator, the First Selectman and the head of the RTM Labor Contracts Committee. What could our leaders do if they wanted to be more active and responsible as in the example of the CEO above?

First we should realize that Connecticut is fiscally breaking down. It is headed to the bankruptcy of Detroit and is already in the near bankruptcy conditions of Illinois. Connecticut’s debt and pension liabilities are a higher percentage of state GDP (17.1%) than in any other state. 888 CT pensioners received pensions of $100,000 or more in 2015 while the median income in CT is $65,753. The exit of General Electric was a fire bell in the night. Union domination in Hartford has not been good for our state. After his two huge tax increases Governor Malloy cannot squeeze any more taxes out of Connecticut residents yet his expenditures and borrowing grow. The bigger our debt, the more our taxes in the future to pay that debt. The more our taxes, the more people leave the state to avoid the high taxes. The more people leave the state, the lower our tax base. The lower our tax base, the higher the taxes for each remaining individual and business and the greater the incentive to leave the state. But just because our situation is so bad, there is hope. Connecticut will turn just as Ohio and Wisconsin have turned. The political moment is right for Greenwich to take leadership on union contracts. There are more taxpayers than union members in Greenwich and in Connecticut. Some leaders in Connecticut who rise to this challenge will be surprised by the positive response they get and will become our future governors and representatives. The attitude of reflexive, preemptive capitulation to union demands is increasingly less politically warranted.

We have a huge problem and our response must be equally huge in energy, creativity and follow through. This is a political exercise. We must put our heads together and really think about it. Neither I nor any individual can come up with the best answers. We need to cooperate and try and then rethink and try again as in the case of the CEO. I would not want my point of view to be dismissed because I do not have all the final answers which must come from a political process. Therefore my suggestions below are extremely preliminary and tentative but perhaps they can help start a discussion about the most serious problem Greenwich faces:

1. Define the problem. How much would we save without the threat of arbitration? Which wage categories are the most excessive? Which unions must we fear most? Our state delegation, which sees union strength in Hartford, can be called in for help defining the problem but not for legislative action which can be effective only after the public is given hope and organized.

2. White Paper on the problem. Lay out the issues in a White Paper. How did the problem arise? What are other towns in CT doing about it? What are some of the statutory provisions in the Greenwich and CT statutes that make the playing field so unequal? What have leaders in other places done to solve the problem? Have CT towns in the past attempted to work together on the problem? What is the true economic value of job security as this is one of the prime benefits given to the unions by the towns and a benefit not available to the tax payers in the private sector?

3. Brainstorm the problem. Cover everything: history of problem, impact of problem, future of problem, legal weak spots on the other side, techniques to try, examples of success elsewhere, potential allies, etc.

4. Strategy. Develop a strategy to combat the problem.

5. Tactics. Develop tactics within the strategy.

6. Tasks. Identify tasks needed by the tactics.

7. Assignments. Assign people to carry out the tasks with measures of performance and deadlines.

8. Alliances. Form alliances with other town facing the same problem.

9. Media. Make presentations about the problem. Get your point of view printed on the front page of the local paper. (Don’t make Horton do all the work.)

10. Groups. Convene groups of local people and experts to discuss the problem.

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"I would like to address the elephant in the room. The teacher's union refuses to agree to a pay freeze this year. The savings from this (~$2.6mm) almost exactly equal the money requested in the SOMR. Wouldn't this be a reasonable solution to the current budget rancor?" – Dean C Goss

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